The following article is featured in our Thames Valley Office Market report 2013, which can be downloaded above, or by clicking here.
What is driving corporates to acquire new office space?
New research launched in our Thames Valley Office Market report 2013 shows that business expansion is increasingly the cause of corporate relocation. In 2011/12, this same analysis found that 72.5% of activity was triggered by a lease event.
We have split the influencing factors into two groups – triggers and drivers. A trigger is what will initially prompt the occupier to acquire new offices, with a driver being the factor that influences the final acquisition decision.
• The triggers are characterised by being: a lease event, corporate activity (i.e. merger), consolidation, expansion or contraction.
• The drivers are identified as being: location, property betterment, efficiency (i.e. the modern workplace), a specific physical need (i.e. self-contained, parking, power) or cost.
While a lease event is still the primary influencing factor when an office occupier decides to acquire new offices, the proportion of occupiers influenced by a lease event has dropped significantly to 43% from 72.5%. The primary triggers were lease events (43%) followed closely by expansion (34%).
Expansion now a key trigger for corporate relocation
In weaker economic conditions, lease events are the dominant driver behind occupational activity, with occupiers only considering relocation when facing a lease break or expiry. However, our latest analysis of 2012/13 trends clearly demonstrates a positive economic market indicator; with a steadying economy, occupiers are considering their future growth requirements and are showing the confidence to expend the necessary capital and make a move to larger premises.
A good example of corporate occupier expansion is that of QlikTech, which occupied offices in two buildings (3,200 sq ft and 4,678 sq ft) at IQ Winnersh, but has now relocated to 21,143 sq ft at Building 1020 on the business park. The need to expand and grow the business was compounded by the fact that it could consolidate two separate offices into one, generating business efficiencies at the same time.
QlikTech’s driver was location, given that it was happily located at IQ Winnersh. Sean Farrington, Regional Vice President of QlikTech, said before the move: “We are about to consolidate our presence at IQ Winnersh from two offices to one, and I can say that we are very happy with the facilities and with the location. Our landlord’s help allows us to keep concentrating on what we need to do, so they are helping us to meet the growth demands that our success is placing on us.”
Location, cost and property betterment
Like QlikTech, location was a primary driver for corporate occupiers in 2012/2013, accounting for 41% of all activity. Cost (22%) and property betterment (22%) took joint second place in the analysis.
These results are interesting, and suggesting that occupiers are able to achieve both a reduction in total property costs and improve their working environment at the same time, due to the economic pressures on the Thames Valley office market. Experto Credite benefited in this way when it relocated from a grade C building in Reading to Inspired, a grade A property in Bracknell (the town that currently offers the best value for money in the region compared to all other Thames Valley centres).
Physical office needs and building efficiency
Relocations driven by a specific physical need (such as Care UK’s move to Hawker House, Reading, due to its exceptional parking, and Netgear’s relocation to Reflex, Bracknell, due to its positive Feng Shui) accounted for just 10%. Surprisingly, efficiency (i.e. a desire to move into a modern workplace) drove only 5% of deals in the period.
Improving corporate confidence?
While the economy both in the UK, EU and wider global markets continues to recover from recession, occupiers will continue to consider corporate real estate activity very carefully.
The need and desire to acquire office accommodation is often outweighed by the significant capital expenditure required to move. However, with a shortening supply of good quality accommodation in the Thames Valley, coupled with the competitive terms that are available to occupiers, it appears that corporate occupiers are growing in confidence and are thus starting to seize the moment in order to relocate and grow their business.
To download a copy of the Thames Valley Office Market report 2013, click here.